When I lived in the US everyone I knew would count 401k contributions as savings when we talked about money, salary, how we’d save each month and everything related.
To me it sounds a bit weird, because where I live now I get pension contributions automatically deducted from my salary and I would never count them as savings – even if I had a private pension fund I still wouldn’t count them because it’s not money that I “have” at my disposal. Is there anything I’m missing about how 401k works?
18 comments
They’re investments, not savings. Both are assets, though. People tend to not get bogged down in such details.
401k loans are a thing, so you can access the money for certain stuff, but to answer your question I wouldn’t refer to 401k as savings
I consider them “untouchable savings” vs what I keep in my savings account at the bank, which is almost nothing.
Hsnshahahaha omg. Savings? retirement? talking about money you have? Where do people come up with this stuff?
Broke Americans don’t count it as savings. But richies idk maybe
You can withdraw or borrow money from a 401(k) account under some circumstances
I don’t consider it part of my savings. Savings can be accessed whenever, my 401k is not really liquid, I can’t withdraw from it without major penalties
I can see how someone would refer to them as that colloquially, but no. I don’t consider my 401k or my IRA as savings.
I would use it to calculate net worth (add up assets and subtract debts)
Are you contributing more than what you and your employer would to a pension? If so, I’d definitely count at least the excess as savings. I could have way more in more liquid “savings” and still be set for retirement, but I choose to have more in my 401K because of the tax advantages.
I count it as a retirement fund, but its really an investment fund for the future. I have a seperate savings account.
No, but I’ve heard some people do this for budgeting. You’re supposed put 10% of your income into savings. Some people consider their 401k contribution as part/all of that 10%.
401k is like owning stocks. They’re yours, you own them. Sell them for cash, or keep them on hand in hopes they grow, or trade for a low volatility asset. (Gross simplification but different than defined benefit pension plan)
I count it towards net worth, but not towards my savings
If I were talking about a budget categorized in the binary of spending/savings, e.g. in the context of “spend less than you make” then I’d count investments as savings.
(Of course, 401k is normally a deduction from your paycheck, and thus isn’t part of your net paycheck, which is usually what you’d use for a budget discussion … but I digress.)
Similarly, in the context of “save X percent of your income”, I’d definitely characterize retirement contributions as part of that.
But if I were talking more specifically about different allocations of money, I would categorize it as “investments” or “retirement funds” or something like that, as opposed to “savings” which would mean cash that’s going into the bank for general accumulation or towards a farther-out future goal/purpose.
I have a pension, 401k, and another 401k type savings plan for federal employees called…the Thrift Savings Plan. Yeah, I consider them savings….it’s not the same as my pension or social security. It’s a savings and investment plan. I choose how much I contribute, I choose how it’s invested…it’s a growing pot of money that is intended for a time in my life where I’ll be living off my savings (along with pension). I also have a separate savings that is more accessible. A bank account that has some emergency money that I easily access if needed.
I don’t really have a measuring contest with friends over our personal savings, so not really sure why it’d be weird to consider money you’re saving as “savings”.
Our national public pension plan is called Social Security (it was created by the Social Security Act of 1935) and that is automatically deducted from a paycheck (and matched by employer) in a payroll tax known as FICA (Federal Insurance Contributions Act, 15.3% of total wage), which funds the Old Age, Survivors and Disability Insurance and Medicare hospital insurance programs.
Technically, a 401(k) or 403(b) or 457 plan (they are often named after subsections of the internal revenue code that apply to them) or any other kind of IRA is a type of tax advantaged individual retirement savings and investment account. It is not a savings account like you have in a bank account that you can use as needed or even like a non retirement investment account, where you can sell securities to pay for living expenses at any time as you can’t touch the money before a certain age without incurring tax penalty excepting certain circumstances. However, the monies in a 401(k) plan are yours. You can move them around between accounts and invest them in a variety of funds.
The money to fund these types of retirement plans are usually deducted from wages and/or provided as part of your compensation package by your employer. Not always, though. My former employer just distributed a bulk sum once a year for my IRA. I had no payroll deductions for that.
I have a defined benefit pension plan with my current job. Basically, a proper traditional employment pension plan with payroll deductions. I don’t think of this as “savings” at all because it is not an individual account.
They’re savings, but they’re not liquid.
No, and it would be weird if anyone referred to it as such. I have more liquid retirement accounts where I can withdraw any time without penalty, and still wouldn’t call them savings.